USDA
What is a USDA loan?
A USDA home loan is a no down payment mortgage for low- and moderate-income homebuyers in largely rural areas. USDA loans are part of a national program created by the U.S. Department of Agriculture to help create loans for first-time homebuyers or people who don’t meet conventional mortgage requirements. They are sometimes referred to as rural development or RD loans. The benefits of a USDA mortgage include no need for a down payment and looser credit requirements. Some drawbacks are that the property must be located in a USDA-approved area and borrowers cannot exceed income limits.USDA home loan requirements
USDA loan eligibility requirements are based on the buyer and the property. First, the home must be in an eligible rural area, which USDA typically defines as a population of less than 20,000. Second, the buyer must meet USDA monthly income caps. To be eligible, you can’t make more than 115% of the area median income. You also have to use the home as your primary residence (no vacation homes or investment properties are allowed). Finally, borrowers have to meet the lender’s basic financial requirements, including:- Income eligibility: Steady job and monthly income, proven by tax returns
- Credit requirements: FICO credit score of at least 640 (though this can vary by lender)
- Existing debt ratio: Debt-to-income ratio of 41% or less in most cases
Pros
- No down payment required
- Lenient credit score requirements
- Seller can pay the closing costs
- Available for both purchasing property and refinancing
- Often come with low, fixed interest rates
Cons
- Strict guidelines around where property is located
- Must use home for primary residence
- Limited income requirements
- Upfront and annual fees
